Saturday 29 April 2017

Peugeot owner PSA targets purchase of GM European division

The maker of Peugeot could take over the maker of Opel
The maker of Peugeot could take over the maker of Opel

Aaron Kirchfeld and Siddharth Philip

PSA Group, the maker of Peugeot and Citroen cars, is exploring an acquisition of General Motors' European business in a deal that would transform the region's automotive landscape.

The French carmaker is in talks on numerous strategic initiatives, including the possible acquisition of Opel, a PSA spokesman said.

PSA is considering the takeover to boost its scale, get access to Opel's engineering and electric-car technology as well as reap savings from joint purchasing and eventually cost cuts, according to one of the people. For GM, it would mark a clean exit from Europe, especially after the UK vote to leave the European Union weighed on the British pound and profits, said a source.

GM is seeking a multi-billion dollar amount for its Opel brand because of the outlook for improved operations, according to a person familiar with the matter. Negotiations on valuations are ongoing.

"I can see why GM may possibly seek to sell its European division, which hasn't made money in many years," said George Galliers, an analyst with Evercore ISI. "It is less clear why Peugeot would be interested in buying GM's assets. The purchase would give them capacity in Germany, one of the most expensive countries to produce cars and would lead to excess capacity."

A combination would, however, create a manufacturer with about 16pc of the European car market, leapfrogging Renault to become the region's second-biggest auto group after Germany's Volkswagen. A deal would also be the second run at linking the two mass-market carmakers. GM, which has controlled Opel for nearly 90 years, sold a 7pc stake in its French counterpart in 2013 after savings from a cooperation fell short of expectations.

PSA chief executive Carlos Tavares has returned the car-maker to profit by focusing on fewer, more lucrative models. Photo: Bloomberg
PSA chief executive Carlos Tavares has returned the car-maker to profit by focusing on fewer, more lucrative models. Photo: Bloomberg

PSA shares rose 4.9pc to €18.81 each at one stage yesterday, valuing the company at €16.3bn. While an agreement could be reached in the coming weeks, negotiations are complex and could still fall apart, said people familiar with the matter.

Both carmakers have gone through painful restructuring in recent years. GM, which has lost billions in Europe in the past two decades, closed a factory in Bochum, Germany, the first auto plant to close in the country since World War II, while PSA shut a facility near Paris. While those moves helped ease overcapacity concerns, the two manufacturers largely target similar customers in Europe's competitive and mature auto market.

Those risks were evident in 2014, when PSA sought a bailout from the French government and China's Dongfeng Motor Corporation, which each hold 14pc stakes along with the Peugeot family.

Chief executive Carlos Tavares has returned PSA to profit by focusing on fewer, more lucrative models. His counterpart Karl-Thomas Neumann, a German auto-industry veteran, has refreshed Opel's image with models like the stylish Adam city car. (Bloomberg)

Irish Independent

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